A decision by the San Luis Coastal Unified School District last month to give a $950,000 low-interest home loan to Superintendent Eric Prater isn’t unprecedented in urban areas with high home prices around the state, but it appears to be a first in San Luis Obispo County, education leaders say.
Superintendents of school districts in areas such as Palo Alto, San Carlos and Centinela Valley in greater Los Angeles have received similar loans. Prater, however, is the first superintendent in San Luis Obispo County to receive a home loan as a compensation perk, at least over the past three decades, according to current and former county superintendents.
Former 16-year county Superintendent Julian Crocker, who retired at the start of 2015 and was Paso Robles’ school district superintendent for nine years before that, said he can’t recall any similar home loan for a local superintendent.
“I know it’s starting to happen in places like the Bay Area where the cost of housing is very high,” Crocker said. “I’m not aware of it locally.”
Jim Brescia, the county’s current superintendent, also said he’s unaware of any home loan arrangements for any local district superintendents. But Brescia pointed out that the head of the Shandon school district is offered a home on school property as part of the compensation package.
Shandon Superintendent Teresa Taylor said Monday that she lives in a private home and the district house is rented to a district maintenance staff member at a discounted rate.
Atascadero Unified owns two apartment units in Carrisa Plains that it rents to faculty and staff for free or below-market value, said Superintendent Tom Butler, though both are currently unoccupied. The district also owns a home near San Benito Elementary School that employees are renting for below-market value, Butler said.
“Some of our districts have offered small, one-time relocation packages ($5,000 to $10,000) for superintendents needing to move to our area,” Brescia said. “Housing is more common in larger metropolitan areas. Each county superintendent must approve a district budget and a district’s ability to meet financial obligations, but these type of arrangements do not require my approval, only that of the local school board.”
Wendell Chun, the executive director of the Oakdale-based superintendent search firm Education Leadership Services, said his firm has helped about 70 smaller school district boards to recruit superintendents for hire, and none have offered a home loan.
“I’ve never seen a smaller district offer that type of compensation package,” he said. “I have seen that in large urban districts with highly expensive cities to live in.”
Chun said superintendents tend to leave their jobs for new opportunities every two to three years.
“If you have an excellent superintendent, and you don’t want them to move, some districts might consider these types of incentives,” Chun said. “Superintendent is a difficult job that requires a very specialized expertise. A lot of people wouldn’t understand the dynamics.”
The board offered Prater the loan as an enticement to stay on with the district after the board learned of his housing situation. He has been renting a home with his wife and three children near the San Luis Obispo County Regional Airport, and their landlord has decided to sell the home, forcing Prater’s family to move.
Prater, who was hired in 2010, said he had received offers from other school districts and was tempted to leave because of the high cost of housing in the San Luis Obispo area and the potential to make more than his current salary of $215,000 per year, he said.
“Given the current real estate market, a family home within our district boundaries is challenging to find,” Prater said. “I have a large family, big dog and lots of moving parts to manage. ... To place all of this in perspective, I could not afford to purchase the home we currently have been renting since 2010. It would sell far above what I have been offered. I am trying to stay well below that amount. However, it has proven quite difficult.”
San Luis Coastal’s board is not considering a home loan program for its teachers or staff, San Luis Coastal school board President Kathryn Eisendrath-Rogers said.
Prater’s home loan contract tied his interest rate to the “applicable federal rate for long-term loans at the rate set for December 2016,” which was set at 2.26 percent, Eisendrath-Rogers said. Initially, school officials said the rate was 2.6 percent, but a check verified it to be 2.26 percent.
As of last week, the interest rate for a $950,000 home loan from a bank would be 4.375 percent, said Mary Trudeau, vice president of The Mortgage House in San Luis Obispo.
Eisendrath-Rogers said the board used the “applicable federal rate” at the advice of its Fresno-based legal counsel, Lozano Smith, and a tax attorney.
The board wanted to offer Prater an incentive that was lower than a bank rate, while also meeting its financial obligations to the district, Eisendrath-Rogers said.
AFRs set a guideline for minimum interest rates that are below-market rate to meet tax requirements. Otherwise, the loan could arouse suspicion from the IRS that taxes are being dodged, according to Turbo Tax.
“We used this rate because it’s a legitimate, supportable interest rate backed by government,” Eisendrath-Rogers said. “It can be used, like in our case, when you don’t want to give a free home loan and you don’t want to give the bank rate, and you turn to this chart because it’s what the IRS relies on.”
Prater’s loan is designated not to exceed $950,000, including all fees such as closing costs and Realtor commissions, but it may be less when Prater actually purchases a home, Eisendrath-Rogers said.
Prater is still looking for a home and has identified one that he may make an offer on soon, he said.
“While I am honored to have this opportunity, I am also trying to be wise, patient and prudent with the resources afforded me,” Prater said.
The president of the San Luis Coastal Teachers Association, Craig Stewart, said that he has received a “pretty wide variety of feedback” from teachers about Prater’s loan, but the union isn’t taking a position.
“I understand why the school board wants to lock up Dr. Prater’s services during this transition period in our district, but there are certainly plenty of teachers for whom this move came as a surprise,” Stewart said. “It is true that there were many teachers in the union that bristled at the idea of this type of compensation, but when it comes right down to it, the board ultimately decides where the money goes, and they have decided that this is a good investment for the district at this time.”
Eisendrath-Rogers said the district also benefits from the loan because the interest rate is higher than the roughly 1 percent the money would earn if it was kept in the district’s general fund account.
“We didn’t pick a number out of the sky,” Eisendrath-Rogers said. “We wanted to earn more than the standard 1 percent, but we also wanted to offer him an incentive to stay.”
She added, “A previous superintendent in our district, Steve Ladd, left after a short period of time to take a new job and he cited housing costs here. Turnover is very disruptive, and Dr. Prater has done a lot for student achievement, district finances and good leadership. We wanted to hold on to him.”
Gordon Eiland, the county’s division manager for tax and treasury, said state law requires school districts to deposit their money into the county treasury for management. The county invests that money in “extremely low-risk securities,” which as of last week were earning 0.64 percent.
“Low-risk investments are required by law,” Eiland said. “These restrictions were put in place by the state legislature after the Orange County bankruptcy in the mid-1990s. Stock market investments are not allowed, nor are derivatives (such as bonds, commodities and currencies).”
But Eiland added that the county doesn’t have control over how a school district chooses to spend its money.
“We’re required to hold it and make it available when they need it,” Eiland said.
Prater forfeits future raises
In recent years, home loan offers reportedly have been made to superintendents including Palo Alto Unified’s Glenn “Max” McGee, who received a $1.5 million loan at no interest as a perk in a high-cost housing community; San Carlos Superintendent Craig Baker, who received a $1.3 million home loan at 2.65 percent interest; and Centinela Valley’s former superintendent Jose Fernandez, who got a $910,000 home loan at 2 percent interest.
Eisendrath-Rogers cited Prater’s leadership efforts in helping to secure and implement Measure D, a $177 million bond measure approved by voters in 2014 to upgrade school facilities; his work to negotiate a $36 million mitigation settlement with PG&E over the anticipated closure of Diablo Canyon nuclear power plant, which generates about $8 million in annual tax revenues for the district; and his strong focus on student achievement.
“The contract with Dr. Prater was arrived at through interest-based bargaining with a board subcommittee consisting of Walt Millar, an attorney, Ellen Sheffer, a paralegal and Jim Quesenberry, a former SLCTA president,” Eisendrath-Rogers said. “The subcommittee worked closely with the district’s legal counsel.”
Eisendrath-Rogers noted that as part of the home loan agreement, Prater will forgo about $50,000 in salary tied to his contract with the district that runs through 2021, including increases that would have given him automatic raises for completing years of service. He also must pay back the entire loan within two years if he leaves the job.
“After board members did their individual due diligence, the board voted unanimously in support of this retention agreement,” she said.